The Biggest Story of 2011: Will the Chicago Housing Market Finally Bottom in 2011?
We’ve never had a post on Crib Chatter where we’ve actually debated when the “bottom” will get here.
So we must be closer to it than any other time in the last 3 years since it’s now being discussed.
I’ve seen some housing analysts predicting a bottoming in prices, nationally, by the summer. But that was before the dismal October Case Shiller data was released which shows the likelihood of a double dip.
With lending still tight is it even possible to talk about a bottom?
What about the impact of foreclosures? Nearly 40% of current sales in Chicago are a distressed sale (either short sale or foreclosure.)
Does the bottom mean capitulation?
How much lower will prices have to go before we reach “the bottom?”
For those of you on the sidelines waiting for “the bottom”- how will you know it when we hit it? Rental parity? Cheaper than renting?
There are several wildcards in the quest for a bottom including:
- Unemployment remains above 9% in the Chicagoland area
- Mortgage rates are slowly rising
- Possible tinkering by Washington with Fannie/Freddie/FHA
Will 2011 be the year when the market finally stabilizes?
The market may stablize in certain markets that didn’t have a dramatic rise in prices and in areas of the country like Phoenix where prices are half what they were before the boom. Chicago is different because we haven’t seen the dramatic price reductions like other areas. Chicago prices will fall in to 2012.
I’m glad you are asking the tough questions that few here are willing to answer – e.g. how will you know the bottom when you see it? It’s easy to say that the bottom is not here because you can always claim, no matter what, that the bottom hasn’t hit yet. Then there is the whole question about whether or not the bottom even matters for someone who wants to buy a place to live for more than 5 years.
The other thing is that you also have to figure in mortgage rates. It’s not just about prices. What’s really relevant is how cheap it is to own a home and right now it’s much cheaper than it has been in at least 10 years. How much longer can interest rates stay this low with government spending out of control?
Late 2013 is the bottom in Chicago, spring 2014 will be stabization.
Buying a house for 5 years or more is no longer the rule. Buying for 15 years is where its at now.
Plenty of people bought 8 and 9 years ago, in many places oher than the northside, and they can’t sell at the 2001 price.
One more thing…personally I think prices are likely to bottom this year but I don’t think we’re going to see them bounce up sharply. The reason is that so many people are holding off on selling at these prices, choosing to just wait it out or become a landlord. On the one hand this supply suppressor will support prices and on the other hand this “shadow inventory” will bleed back into the market at any sign of price improvement or as people find that they have no choice but to sell.
Could any of you recommend a decent painter/drywall repair person?
Thank you.
The bottom is not until we go down another 50%. If the dollar keeps devaluing then inflation will really accelerate (look at gasoline, going to $5+) and we may have LOTS of problems in this country.
“The reason is that so many people are holding off on selling at these prices, choosing to just wait it out or become a landlord.”
I think prices still have to fall,enough so that someone could be a reluctant landlord AND afford a decent SFH without being mortgaged to the hilt.
@Steve — Dan Dolce Painting 630.696.8759
“It’s easy to say that the bottom is not here because you can always claim, no matter what, that the bottom hasn’t hit yet.”
Of course it’s been easy to say that thus far since it has obviously been correct. Unlike, say, your incorrect bottom call for months that Spring 09 was it. Or, your current bottom call for housing costs. BTW, does that include cash buyers or those with large down payments? Now it’s “does it even matter if you’re there 5 plus years.”
Face it Gary, your analysis to date has sucked. Your pitiful attempts to knock those who have understood this correction much better than you do nothing to change that simple fact.
The bottom is no where near. If you read Maniacs, Panics and Crashes and Popular Delusions and Madness of Crowds you’ll find that a bottom occurs when: 1. The asset price in question has deflated to depths most rational people can’t even believe. 2. As a result, there is widespread pessimism in regards to that asset class (i.e. real estate). We haven’t reached that point yet. Not by a longshot. Also, there are many fundamental reasons why real estate will continue to decline for years to come. Among those: baby boomers who need to retire and sell off their largest asset, a delinquency rate of about 14%, shadow inventory, artificial government support that can’t be financed indefinitely, etc…
Care to disagree with me? Then fine, please provide a good rational argument. Thanks.
“and right now it’s much cheaper than it has been in at least 10 years.”
Actually today its much more expensive to finance a house vs. two months ago. I wonder what impact this will have on valuations in the near term?
I’ve always said there are too many garbage mortgages still out there to be worked through. Lets give the HAMP people time to re-default and let the remaining option ARMs work through the system and enter distress and I guess winter 2014 as a bottom.
Housing went up in price primarily due to bad lending and easy credit. Those days are over and with the exception of the FHA, lending standards have corrected. Income, down payment, good credit are required. No more NINJA loan. So in theory, going forward, we just need to work through the supply of foreclosures and overbuilding and any future defaults that arise as a result of current foreclosures. I figure another 2 or 3 years to work through that mess.
However, my bottom call caveat in 2014 is that it’s pretty hard to predict that far into the future, heck the weather forcasters can’t go more than a week with any accuracy; so I’ll change my bottom call as necessary prospectively.
“Of course it’s been easy to say that thus far since it has obviously been correct. Unlike, say, your incorrect bottom call for months that Spring 09 was it. Or, your current bottom call for housing costs. BTW, does that include cash buyers or those with large down payments? Now it’s “does it even matter if you’re there 5 plus years.”
Face it Gary, your analysis to date has sucked. Your pitiful attempts to knock those who have understood this correction much better than you do nothing to change that simple fact.”
Right now the CS index is right around where it was in April 09 so thus far how wrong have I really been? I think “sucked” would appear to be too strong of a term. As for housing costs…most people have a mortgage and that’s the perspective I’m taking.
Face it G, you’re not even making a call here other than that the bottom won’t hit in 2011. You’ve conveniently taken a position that you can claim hasn’t been disproved for the next 25 years. You will always be able to claim that the bottom is still coming. Give us a number and a time frame please.
Yeah, G, man up….
“my bottom call caveat in 2014 ”
True. My call of a bottom in 2014 is predicated on the fact that the government does not engage in any more gimmicks in order to prop up the housing market. If they do and it has an effect (QE2 doesn’t seem to be working so) then I will push back my bottom prediction as necessary.
The market has to function normally for it to reach some stability. There are too many foreclosures/short sales right now. Once we work through these and they make up a precentage of transactions in-line with the long-term averages there will likely be some pain and uncertainty.
Hey all you MBA smaertypants
Why has the stockmarket made an almost full recovery with all of the fundamental problems our economy still faces?
Gary, you say the bottom will occur in 2011 and I say it won’t. Once again, one of us will be right.
There are so many variables picking an exact date with so much correction still to come in the green zone. But, it sure won’t take past 2012 to see that you are wrong and I was correct, once again.
I’m sure this fact pisses you off but you just play with data as a marketing tool to get people to pay you to buy or sell declining assets. I get paid for the analysis.
d, your stimulus $s “at work.”
“Hey all you MBA smaertypants
Why has the stockmarket made an almost full recovery with all of the fundamental problems our economy still faces?”
I’ve already explained this: equities are an inflation hedge. Not only consumer seen inflation but also a hedge against a money supply that is getting debased via the creation of money (Bernake likes to play word games with the word “print” but its money creation nonetheless).
Corporate balance sheets are excellent compared to 2 years ago. Everybody is sitting on tons of cash. Why wouldn’t the stock price be higher?
“There are several wildcards in the quest for a bottom including:
1. Unemployment remains above 9% in the Chicagoland area
2. Mortgage rates are slowly rising
3. Possible tinkering by Washington with Fannie/Freddie/FHA”
Also don’t forget the potential elimination of the mortgage interest tax deduction.
everyone right now is talking about how the housing market is dead, so I would say that if you buy a place that doesn’t have issues (location, no parking, no ac, etc.) then now IS the time to purchase something that you could stay in for a long time (and not have to worry about getting divorced when the time comes to sell, LOL)… You know, just like home ownership used to be!
Perhaps long term rentals will pop up? It’s pretty hard to find 4+ bedroom SFHs for rent. The site ‘Vast’ seemed to have a few though and found this:
http://hotpads.com/rentals/2449-W-Byron-Street-Chicago-IL-60618–3mt3fsqy79sfe#lat=41.95218&lon=-87.6903&zoom=20&previewId=3mt3fsqy79sfe&previewType=listing&detailsOpen=true&listingTypes=rental,sublet,room,corporate&loan=30,0.0525,0
$2400 to live in North Central in a new place makes me think I should take the hit on the 2/2 I’m in and start renting again, even though the area wasn’t first on my list.
5% within CS SFH @ 120. so as low as 114. The condo’s I am more bearish maybe 10-15% lower on the CS-condo index. there could be a triple dip as well but the floor is being set. My cavet is i can adjust my prediction on the economy, mortgage factors and if asteroids are coming towards Earth.
Guys: this is pretty simple. 30% of buyers got no money or little money down loans. These buyers no longer exist. Many of them were multiple home buyers or specing on condo investments. They are gone. Therefore the demand is reduced greatly. When demand is reduced prices go down. Supply of money is also tight. That means prices go down. So we have 2 forces. 1. Bad economy and peolpe scared to spend. 2. Fewer buyers since the “imaginary buyers” are gone. I don’t see prices stabilizing until 2012 and i don’t see a “recovery” to 2006 levels for at least 5 years.
The last nail in the coffin will be the tax credit. If that goes away, which very well might happen, expect prices to continue to drop hard as the last financial incentive to own will be gone.
“But, it sure won’t take past 2012 to see that you are wrong and I was correct, once again.”
That’s because I’ve taken a position that can be definitively proven at some point in the future to be incorrect while you have conveniently taken a position that can never be proven incorrect. I tell you what…I predict that at some point in the future Lichtenstein will annihilate the US with a massive nuclear holocaust.
“you just play with data as a marketing tool to get people to pay you to buy or sell declining assets. I get paid for the analysis.”
I don’t even understand how the data that I present would encourage more real estate activity. It doesn’t matter what I tell people because if they believe that prices are going up then there would be lots more buyers active and if they believed that prices are going down then there would be lots more sellers active. I don’t care if prices go up or down.
Re 2449 W Byron: West of Western but still seems like a really good rental price. Also for sale at $850K (previous sale at $914K in Jan 2009).
“Will 2011 be the year when the market finally stabilizes?”
Also are we talking real or nominal? I’m not sure there are many on here who think housing prices will match or exceed inflation for the next few years.
“Re 2449 W Byron: West of Western but still seems like a really good rental price. Also for sale at $850K (previous sale at $914K in Jan 2009).”
You beat me to it, DZ.
“Re 2449 W Byron: West of Western but still seems like a really good rental price. Also for sale at $850K (previous sale at $914K in Jan 2009).”
You beat me to it, DZ.”
PS: 2/3 br units in 2-flats generally rent for $1200-$1400 in the hood, so that’s really an excellent price if you need/want the space. After taxes (11,867, w/o HO exempt), you’d be paying under a 2.5% rate, assuming a value of over $675k (which, btw, would get it sold this week).
thats a crazy good rental deal, but its probably cheap because of what was already mentioned and the fact that when the house sells you will get the boot, so its not a great long term option (although if it was i’d be on that real fast)
Bob ” I’ve already explained this: equities are an inflation hedge.”
Isn’t inflation a homeowner/borrower’s best friend? When my parents retired their 30 yr mortgage 12 years ago they were paying $250 a month.
Tipster ” Corporate balance sheets are excellent compared to 2 years ago. Everybody is sitting on tons of cash. Why wouldn’t the stock price be higher?”
If companies are sitting on tons of cash, then doesn’t it stand to reason that they might start hiring and reinvesting in their companies soon, thus strengthening the economy and allowing more people to buy?
I just don’t get how the stock market can be doing great, consumer confidence is up , yet people on CC still proclaim that the sky is falling and house prices will crash.
“Isn’t inflation a homeowner/borrower’s best friend? When my parents retired their 30 yr mortgage 12 years ago they were paying $250 a month.”
I’ve already explained yesterday why this kind of inflation is unlikely to stem RE losses in the near or intermediate term. 5+ year outlook anything is possible wrt inflation.
“If companies are sitting on tons of cash, then doesn’t it stand to reason that they might start hiring and reinvesting in their companies soon”
I suspect a lot of this corporate cash hoarding going on is leveraged companies scared to death credit markets will seize up circa late 2008. A lot of companies were on the brink and Sr. Mgt. knows the quickest way to get ousted is to file BK. They aren’t going to get caught with their hand in the cookie jar again. They are hoarding cash to meet their debt obligations coming due over the next few years. Corporate debt levels have never been higher.
http://www.freerepublic.com/focus/f-news/2565654/posts
its because misery loves company
most CCers are a bunch of negative nellies
yeah things suck (for some) but guess what, things will always suck (for some) but you’re blind if you can’t see that we in the US of A will be fine down the line
Quick fact check: The unemployment rate for Chicago is not above 9%, it just dropped to 8.9%…
http://www.chicagobusiness.com/article/20101124/NEWS02/101129965/chicago-unemployment-falls-1-5-points-to-8-9
“Hey all you MBA smaertypants
Why has the stockmarket made an almost full recovery with all of the fundamental problems our economy still faces?”
Because stock prices have little to do with the general economic activity of the United States. Stocks mostly reflect expected corporate profits which have been quite high the past few years. The reason American companies are doing well even though the US consumer is not spending is that consumer spending in the US is now relatively irrelevant to the success of American companies. Most of our profits are coming from overseas where the middle class is exploding and buying lots of American Branded goods. This means our companies are reaping profits from all over the world and bringing it back to their stockholders (who are primarily American). This will eventually have a stimulative effect as most Americans own stock in some form or another and will spend more when their personal wealth increases with stock prices.
Yes, I just checked employment stats for the area earlier this morning and employment in the PMSA is up 72,000 in the last year.
“PS: 2/3 br units in 2-flats generally rent for $1200-$1400 in the hood, so that’s really an excellent price if you need/want the space. After taxes (11,867, w/o HO exempt), you’d be paying under a 2.5% rate, assuming a value of over $675k (which, btw, would get it sold this week).”
I remember seeing a SFH for rent on 2100 block of Bradley while we were walking around last summer. Can’t remember rent exactly but seemed low to me, mid $2000s maybe. Older house, window AC, seemed nice enough.
“its probably cheap because of what was already mentioned and the fact that when the house sells you will get the boot, so its not a great long term option (although if it was i’d be on that real fast)”
You could always see if they’d take a long term lease couldn’t you? Offer them somewhat higher rent for say 3 years. Maybe they’d go for it. That is a real issue with renting SFH though. We are renting from a very long term landlord, which gives us a lot of comfort.
PS I think only a conforming mortgage on the Bradley place. Should make HD happy.
“That’s because I’ve taken a position that can be definitively proven at some point in the future to be incorrect while you have conveniently taken a position that can never be proven incorrect. I tell you what…I predict that at some point in the future Lichtenstein will annihilate the US with a massive nuclear holocaust”
Your comprehension is no better than your analysis. Like I said, it sure won’t take past 2012 to see that you are wrong and I was correct, once again. In other words, prices will be lower in 2012 than 2011. Just like when you called spring 2009 the bottom (for months) and I said a new low by March 2010. Or, when you and JMM called a 120 CS SA bottom a couple months ago and I took the under by Nov (119.95 already in Oct.)
“I don’t even understand how the data that I present would encourage more real estate activity.”
Another comprehension problem for you. I never said it would. Only that you use it as a marketing tool to get more of the shrinking pie.
I am curious as to where we are now in terms of prices? Are we at 2004 levels or below. Your responses would be appreciated.
“I’ve already explained yesterday why this kind of inflation is unlikely to stem RE losses in the near or intermediate term. 5+ year outlook anything is possible wrt inflation.”
If you thought massive inflation was around the corner, having a fixed rate mortgage even at the somewhat higher rates now is a huge inflation hedge, no? May not stem real RE losses, but is a big benefit if you thought we would have a few years of double digit inflation.
also because bonds are pricey right now
i mean why would anyone buy treasuries right now at the craptastic and artificially low yields that they are at.
I understand safety but when a company like P&G or whoever is yielding more than the 7 year treasury (and oh yeah P&G raises their dividend every year too) you can see why people are buying lots and lots of stocks
“If companies are sitting on tons of cash, then doesn’t it stand to reason that they might start hiring and reinvesting in their companies soon”
They have been – overseas. No wage inflation in the cards in the US.
“I remember seeing a SFH for rent on 2100 block of Bradley while we were walking around last summer. Can’t remember rent exactly but seemed low to me, mid $2000s maybe. Older house, window AC, seemed nice enough.”
Which, apples to apples, would mean the Byron place should get at least hi-2s, probably low-3s, unless that Bradley house had more bedrooms.
G,
So let’s just be absolutely precise then on what you are saying so that we can check back in 2 years and 3 months to see who was correct. The CS index for some month in 2012 will be lower than every single reported month during 2011. Everyone please take note.
Of course, it would be helpful to know just how much lower you think it will go because if it’s only 1% lower then that’s not really significant – just like the index hasn’t yet gone significantly below the spring 09 low.
And I still don’t see how my predicting a bottom in any way helps me gain more of a shrinking pie. It seems I would have to understand that in order for it to be my motivation for making the prediction.
“If you thought massive inflation was around the corner, having a fixed rate mortgage even at the somewhat higher rates now is a huge inflation hedge, no? May not stem real RE losses, but is a big benefit if you thought we would have a few years of double digit inflation.”
Only if you suspect massive inflation will translate into inflation in RE prices. I tend to think it won’t for a number of reasons. And we’re already seeing this inflation in commodity markets and certain others.
Stocks are up because companies are earning record profits. When if ever companies start hiring is the tough question. So many jobs have been lost to computers, robots the internet and outsourcing overseas that it’s tough to see what jobs are really out there.
All you experts, I am repeating my question “We are interested in north facing units (both lake and city views) in museum park one east, but they are at 750K range and I feel they should be at 600K. Shoud we wait for them to come down or go for other units that we feel are more faily priced?”
I want to know what you all think. I wish Sabrina was featuring some of these units there are quite a few of them for sale on redfin. Say:
http://www.redfin.com/IL/Chicago/1211-S-Prairie-Ave-60605/unit-2505/home/21786656
“The CS index for some month in 2012 will be lower than every single reported month during 2011. Everyone please take note.”
I think a simple average of all 12 months would be a fairer barometer. We would need to wait until March 2013 however to check as CS does retroactively change data slightly upon further revisions.
“Only if you suspect massive inflation will translate into inflation in RE prices.”
No, not RE prices. Wages, and mortgage interest. So long as RE prices don’t decline proportionate to the interest increase, the fixed-rate mortgage is a good inflation hedge, assuming *wage* inflation.
I look at sold prices for condos in my neighborhood over the past 2 years, since I bought my place, and prices are pretty flat. I don’t understand why these regional price averages matter to anyone.
I guess it only matters if you are talking about buying real estate in theory, and not actually willing or able to buy anything.
Others have answered, but the difference between the stockmarket and real estate is liquidity. People don’t appropriately value the liquidity premium when everything is going up; but they do now…
Miumiu,
“We are interested in north facing units (both lake and city views) in museum park one east, but they are at 750K range and I feel they should be at 600K. Shoud we wait for them to come down or go for other units that we feel are more faily priced?”
Based upon recent sales in that building the unit you referenced would be a good deal at $660K. That’s without doing a lot of work that I would normally do. You might not think it’s worth that much but that’s where the market is. You never know what you might get until you try in writing and find out where the seller’s head is. There are other units in the building that on the surface appear to be priced better but without seeing them I wouldn’t know for sure.
But you’re also wanting to know if the market will present a better opportunity down the road. The fact of the matter is that no one, not even G, can time the market perfectly. I suggest you make the timing decision based upon your personal circumstances.
miumiu, unit 2505 in OMP will cost more than other similar units just for the sole fact that the ceilings are much higher on that floor for whatever reason (probably elevator related)
no clue if 500 a sqft without parking is a good deal for that building though, especially with that unit as it is fairly unique (xtra high ceilings + lake & city views) someone who falls in love with it might snap it up, or it might sit on the market for 2 years, who knows
“We are interested in north facing units (both lake and city views) in museum park one east, but they are at 750K range and I feel they should be at 600K. Shoud we wait for them to come down or go for other units that we feel are more faily priced?””
OMP is very nice and on my list too, but I think it’s overpriced a good bit, especially considering that the west tower is very similar and almost completely empty.
miumiu, check out this story too in regards to omp and the overall development:
http://www.chicagorealestatedaily.com/article/20101215/CRED03/101219940/partner-cuts-value-of-stake-in-central-station-condos#axzz18BmsxgCw
draw your own conclusions, but I’m not in a hurry to buy in there quite yet.
Miumiu – you’re kind of answering your own question. If you feel the units aren’t worth what they’re asking, you’ve got one of two options: Wait to see if the prices drop, or purchase elsewhere.
If you’re not in a rush to move, then sit on your hands until you find something at a price you like.
Excellent points everyone. I am not particularly attached to the high ceiling aspect. I just think compared to other MP units in SL, these prices seem very high.
For instance see
http://www.redfin.com/IL/Chicago/233-E-13th-St-60605/unit-2103/home/12637673
I realize that this is not as amazing of a view but it is 250K less which does not make sense to me. Also this building is a bit older and definitely a safer investment in terms of occupancy ratio, reserves and all. BTW, the paint job, bathrooms and kitchen look terrible, but I think they could be fixed for less than 50K.
Bob2, you are right about the MPW. I wonder what’s up with that. The 2BRs there are amazing but too big and out of our price range. This is an in town for us.
“Yeah, G, man up…”
An appeal to emotion only works on a mark. Did you buy recently?
Bob 2 very interesting article. I guess they cannot make MPW rentals then as the loan is still standing on it. I am all for waiting to see what happens too. My husband is worried that the interest rates are going up and our cash might lose its value with inflation and all, but I am with you on waiting to see what comes next. Maybe we’ll end up being neighbors eventually. That will be cool : )
“An appeal to emotion only works on a mark.”
So then, you consider Gary a mark? Or did he kick your dog?
miumiu, trust me when I say you don’t want to live in a high rise building with less than 10′ ceilings
now I don’t think that 15 or whatever foot ceilings are necessary but 8-9′ ceilings in highrises (like in the one you linked) just make me feel claustrophobic
An interesting point Sonies. I wonder what our current ceiling height is (we have a 1BR). I am happy with it as it. I will ask my husband. Thanks for pointing that out. You are right that the place felt claustrophobic. At the time, I thought it was the paint job. Next time, I am ready to buy something, I will take you along : )
We have too many homes and not enough households. Until that is fixed we’ll have declining prices. The best fix is to allow more skilled immigrants to enter the country.
“So then, you consider Gary a mark?”
No, hust a UHS tht uses the technique.
“No, hust a UHS tht uses the technique.”
I suspect you got my point.
I think it’s theoretically impossible to “know” when bottom hits unless the bottom has passed. Kind of like how we do not know when a recession starts and ends until time moves outward so we have the benefit of hindsight. Even if there’s rental parity in pricing, it’s also possible that prices (for some reason) could fall more or rise and fall.
That being said, I think 2011 is the bottom. That’s based on data but a lot of guessing. Heck, no expert predict interest rates would fall to where they landed in mid 2010 during the recession. Many experts were predicting increased rates. Further, I think rates fell in some part before or without the help of QE.
I am more certain that in solid city areas and coveted suburban areas, prices will bottom in 2011. Nevertheless, I wouldn’t expect to see any meaningful price appreciation until 2013–and by meaningful I mean anything greater than 2%.
I think another 5% leg down would be corrective.
@Joe’s “The bottom is not until we go down another 50%. ”
Doesn’t a 50% downturn sound illogical? Really?
@miumiu: Good luck in your search. I would be careful buying most 2BR (even with great views) for more than half a million. This market, and the broader 2br/2ba condo market in general, seem uncertain to me. This is the market that I, admittedly, think is hardest to predict. I’m not sure about long term demand for purchase, especially for non-conforming borrowers (those needing >$417K).
“@Joe’s “The bottom is not until we go down another 50%. ”
Doesn’t a 50% downturn sound illogical? Really? ”
Doesn’t “another” (when we’re down ~25%) tip you off to the sarcasm? Really?
But seriously, many good points. And even if we are at “the bottom” in 2011, that does not mean that everything will sell for the same or more than 2011 prices in the near or mid future.
Also, if we’re talking about CS Index bottom, I’m with G that 2011 won’t likely be the bottom, as I think that most “nice” places will toddle along flat, but that crap will continue to plummet and we have a *TON* of coming first resales of condos all over the city (and Pulte-, Newman-type sfhs in the exurbs) which just will not be (in general) for higher values than the original sales, which will aggregate to downward pressure on the CS Index numbers.
triple dip comes in 2012 when all the dough 4 dumps sales come back on the market after the 3 year limit is up
/sarcasm off
“triple dip comes in 2012 when all the dough 4 dumps sales come back on the market after the 3 year limit is up”
So, you’re predicting that this dead cat bounces *twice*?
no it will bounce forever until all hell breaks loose and zombie apocalypse occurs… only then will home values reset to 0 and true market equilibrium will take place with no more funny money
serious business transactions only… no jokes
“zombie apocalypse”
Zombie cats, or real zombies? I’ve heard that zombie cats, when killed a second time, are known to bounce three or four times.
mhw’s analysis is agreeable to me. You can’t identify the bottom until it’s long gone. Inexorable population growth in the US (both via births, as well as our robust immigration intake) is busy soaking up any excess in housing. And it’s illogical to think that pricing dips much below replacement cost. It’s already obvious that pricing in the South Loop condo area, for example, is at/near the bottom with resales starting to occur at the $300/sq foot range. This is replacement cost.
And people need to move around, irrespective of the prices. Already people have delayed moving because of the housing turmoil. At some point this breaks loose, and the market starts working again. An analog is the car market – I’m invested heavily now in domestic car companies, who have seen huge sale losses over the last few years. This can’t continue, because cars wear out and need to be replaced – at some point the market breaks loose and activity shoots up to above normal levels.
“This can’t continue, because cars wear out and need to be replaced ”
New car sales are still significantly below prior crash levels. Also after cash for clunkers used car prices of certain models shot up.
In fact I’d be willing to bet in this recession used car resale values have increased because they are still significantly below new car prices.
“pricing in the South Loop condo area, for example, is at/near the bottom with resales starting to occur at the $300/sq foot range. This is replacement cost.”
C’mon. $300 psf is NOT replacement cost for most of those SLoop condos (OMP, sure; some others, fair enough; NOT all). *MAYBE* if you had to buy a new piece of land big enough for one, in the same location (ie, counterfactual), but the land acquisition is, effectively, a sunk cost to be disregarding in finding the replacement-cost-based floor.
“And people need to move around, irrespective of the prices. Already people have delayed moving because of the housing turmoil. At some point this breaks loose, and the market starts working again. An analog is the car market – I’m invested heavily now in domestic car companies, who have seen huge sale losses over the last few years. This can’t continue, because cars wear out and need to be replaced – at some point the market breaks loose and activity shoots up to above normal levels.”
Volume almost certainly has to come back up sometime but prices do not (relatively speaking). Also, I’m not opining on the ultimate merits of your investment, but while people need cars, they don’t necessarily need cars from “domestic” manufacturers.
“Yeah, G, man up…”
An appeal to emotion only works on a mark. Did you buy recently?
Um, no…I did not buy recently. I bought in 2002…have not lost or gained anyting as prices in my building are hovering around 2002-03 prices. Some benefit for tax effects I suppose. But, all in all, I like my building and unit, which is nicer than rentals I have seen. My comment was directed towards your inability to make a firm prediction as Gary points out. It doesn’t take talent to be a pessimist or naysayer in this market. It takes guts to actually make a prediction.
Mine is that, barring any interference with the market from the federal government, prices will bottom in fall 2011 and stay flat through 2012. I hope there is no distortion of the market….just rip the bandaid off and get it over with.
anon(tfo) you have been more bearish than ever these last few weeks. I’m so proud of you! You’ve seen the light!
“as I think that most “nice” places will toddle along flat, but that crap will continue to plummet”
There certainly is a lot of crap. Outlook for the 6 figure to 500k+ set definitely has improved, so I do see the higher end moving when bonuses hit bank accounts.
Speaking of which:
http://www.redfin.com/IL/Chicago/1728-N-Cleveland-Ave-60614/home/13346707
Under contract. List price not far off from late 2007 / early 2008 initial price.
Christmas came a little early I guess.
McMillan’s wife was always better at figuring things out.
“And people need to move around, irrespective of the prices. Already people have delayed moving because of the housing turmoil. At some point this breaks loose, and the market starts working again. An analog is the car market – I’m invested heavily now in domestic car companies, who have seen huge sale losses over the last few years. This can’t continue, because cars wear out and need to be replaced – at some point the market breaks loose and activity shoots up to above normal levels.”
Wait. I’d missed this. Why can’t the japanese/korean/german car makers continue to increase their market share? What about when (not if) a Chinese company begins importing Chinese made cars? Why, even if new cars sales go up dramatically, *must* the Big Three increase sales?
Similarly (even tho it’s not in your post), why would it be *necessarily* true, even if houses start selling and people start moving, that *new* home sales would recover?
” Or, when you and JMM called a 120 CS SA bottom a couple months ago and I took the under by Nov (119.95 already in Oct.)”
Interesting but I didn’t call a bottom. I called a range. Ranges have room for fluctuation, despite your use of excessive significant digits. Anyway, we’re still range bound. Also, not seasonally adjusted is what was being discussed, so you are inaccurate.
I think the 800 lbs gorilla in the room no one is talking about is the shadow inventory. It’s huge. it’s in all types of areas, good and bad. nowhere is immune. There are two to three time as many homes behind on their mortgage today than there are homes currently in foreclosure. There are twice as many homes 90+ late right now – and past 90 days late – there is a 2% chance of curing. I’m not making this up 2% chance of a self-cure. So these properties will continue to flood the market for years and years to come. And as far as the ‘good areas hold up but bad areas fall’ that means we’re on a ‘entirely new paradigm’ argument or ‘it’s different here’. Only India and Brazil have those types of housing markets – the shanty towns and the rich areas surrounded by armed guards and barbed wire. There are plenty of nicer areas in detroit and compared to Chicago it’s cheap. The bad or medium areas will drag down the good areas. There’s a handful of people who MUST live in the prime areas but there are plenty of people who choose not to live in prime areas and instead look a little outside. Glenview and NOrthbrook and LIbertyville would have never been developed if people HAD to be on the north shore.
A local, please tell me, oh wise one, how your prediction is any more “firm” than mine?
Yours: “prices will bottom in fall 2011 and stay flat through 2012. ”
Mine: “prices will be lower in 2012 than 2011”
“Only if you suspect massive inflation will translate into inflation in RE prices. I tend to think it won’t for a number of reasons. And we’re already seeing this inflation in commodity markets and certain others.”
Petrochem inflation is following food price inflation. Unlike food which can be explained away as non-core, petrochem is so pervasive and impacts the prices of all goods and services. Building products are not immune from this trend and replacement cost is a very real factor driving home prices. Think reno costs vs. 2000 decade era new construction, etc.
“Building products are not immune from this trend and replacement cost is a very real factor driving home prices.”
True but when you consider the vast RE capacity that was brought online via the bubble, in an environment with different pricing assumptions, it isn’t going anywhere and isn’t going to spoil (well, not in a sense that it can’t be brought back to habitable condition for cents on the dollar) I am hesitant to think inflation will affect RE pricing in any significant way.
Also the trend has been toward more people/roommates per unit and families taking in relatives/etc. I think this will change once people are able to do so but able is the key word. Inflation isn’t going to enable any of this it’s going to be sustainable employment growth of similar quality/wage of jobs lost during the bust.
“[1728 Cleveland] Under contract. List price not far off from late 2007 / early 2008 initial price.”
That listing contains an outright lie: The 2009 taxes were not $3,394, they were $48,930.32.
Also, the seller’s new house:
http://www.zillow.com/homedetails/3898-Baughman-Grant-New-Albany-OH-43054/34052201_zpid/
“not seasonally adjusted is what was being discussed, so you are inaccurate”
JMM never fails to make something up when proven wrong.
“Also, the seller’s new house”
Ok, so what do we conclude from that? That cost of living in suburban Ohio is cheaper than Lincoln Park?
“That listing contains an outright lie: The 2009 taxes were not $3,394, they were $48,930.32.”
Lie or stale data? 2008 (payable 2009) shows AV of 23,661. Possible the realtor just used 2008 and didn’t lie outright as you say? I’ve seen realtors do sillier things.
“A local, please tell me, oh wise one, how your prediction is any more “firm” than mine?
Yours: “prices will bottom in fall 2011 and stay flat through 2012. ”
Mine: “prices will be lower in 2012 than 2011?
G- My prediction is that bottom is in 2011. You simply say prices will be lower in 2012 and still leave the question open as to when the bottom will hit. Under your prediction, it could still be in 2013, 2014 or 2020 for that matter. When do you predict we will hit bottom?
“JMM never fails to make something up when proven wrong.”
Stuggling to understand what was made up here? The CS index was 122 I believe in October. Point of fact.
“Lie or stale data? 2008 (payable 2009) shows AV of 23,661. Possible the realtor just used 2008 and didn’t lie outright as you say? I’ve seen realtors do sillier things.”
The redfin listing you linked to shows the “tax year” as 2009. Many, probably most, listings entered before the bills come out show 2008 as the tax year and show the 2008 tax bills. Perhaps an honest mistake–and not really any chance of anyone who is truly interested being mislead–but still, at best sloppy.
“Ok, so what do we conclude from that? That cost of living in suburban Ohio is cheaper than Lincoln Park?”
That they are one of the people who, despite losing a little money, net, on their sale, did a lot better on their purchase–they paid 37% off of original list for the new house.
“you still leave the question open as to when the bottom will hit”
So what? I say it will be proven in 2012 that 2011 was not the bottom.
I’ll tell you what, I’ll give my answer when I believe it is about 9 months out just as you have. That seems fair, right?
Several thoughts: barring any major negative economic shock, what evidence is there to support, or suggest, large future drops in home prices? If we haven’t hit the bottom (nebulous as it is to define), given the relative price stability, we should be *close* to the bottom in the SFH and condo markets for most of the city. While the size of the shadow inventory isn’t well known, the fact that banks are only slowly releasing the inventory is known – and that trend should continue. This will surpress future value, but should not add to future declines (banks want to preserve value too).
So, if the economy continues to grow slowly, what could cause additional sharp declines?
1.) Privatize Freddie/Fannie too rapidly (90% of mortgage market)
2.) Eliminate mortgage interest deduction
3.) Sharp real estate tax increase
Thought:
1.) Even tea-party candidates and right-wing republicans are backing away from an immediate privitization of Freddie/Fannie because they know it will destroy the mortgage market — it is more likely that this is will be phased in.
2.) Some legislation is likely here, but it will be staggered – no change for mortgages under say $500,000 with less write-off above. Most home values won’t be impacted.
3.) RE Taxes – this is what scares me the most. With all of the unfunded pension liabilities and operating shortfalls, we could start seeing large increases in taxes (or reduction in services), which will especially hurt values in Cook Couty.
“struggling to understand what was made up here?”
It must be hard for you to keep it all straight, jmm.
“barring any major negative economic shock, what evidence is there to support, or suggest, large future drops in home prices? If we haven’t hit the bottom (nebulous as it is to define), given the relative price stability, we should be *close* to the bottom in the SFH and condo markets for most of the city. ”
Well, “bottom” can mean different things. If we are specifically talking about a bottom in CS-Chicago index, I laid out exactly why I don’t think we will see the near term monthly minimum in 2011 (barring unexpected, significant wage inflation from Q3-11 onward).
However, if one is saying that right now-ish is the time to minimize monthly costs of buying a home with an 80%, 30-year fixed rate mortgage, that *might* be true (esp. with the op.cost of the DP at basically 1%). And that might be even more true if you narrow it to certain submarkets. But that does not, to me, in anyway equal “we’re at/near the bottom of house prices”, which is both a broader market thing and based on nominal prices of houses, not total cost of financing.
So, to avoid talking past each other on this, it makes sense to define with reasonable precision what “the bottom” means. I take it to mean the minimum CS Index number for Chicago, followed by at least 12 months (and prob 36) of higher index numbers every month. And, bc we have two indices, it might be two different months. Gary, G, JMM and possible a local were discussing “the bottom” in CS terms, and to some extent more amorphous terms, which leaves the whole thing very squishy.
These comments are like late 2008 all over again. My prediction for 2011? The disappearance of another bunch of chronic bottom callers around here.
i also made a firm prediction
“5% within CS SFH @ 120. so as low as 114. The condo’s I am more bearish maybe 10-15% lower on the CS-condo index. there could be a triple dip as well but the floor is being set.
the g used to stand for generous [w/ data etc.] but now its just grouchy
”
G on December 29th, 2010 at 5:59 pm
“struggling to understand what was made up here?”
It must be hard for you to keep it all straight, jmm.
“
2014 people. Foreclosures have flooded the market everywhere, no need for multiple bids, buyers materize with smaller down payments, continued low interest rates, most hamp loans have redefaulted. We need another large drop for prices to stabilize. You all keep calling bottom but there aren’t enough buyers at todays Rock Bottom prices. Where are the buyers? Where are they? We need much cheper housing, such as ohio pricing in chicago and the market will rebound. We have the supply in the shadow inventory, we have demand at lower prices. What is so hard to understand?
“2014 people.”
For the bottom determined *how*?
“2014 people. Foreclosures have flooded the market everywhere, no need for multiple bids, buyers materize with smaller down payments, continued low interest rates, most hamp loans have redefaulted. We need another large drop for prices to stabilize. You all keep calling bottom but there aren’t enough buyers at todays Rock Bottom prices. Where are the buyers? Where are they? We need much cheper housing, such as ohio pricing in chicago and the market will rebound. We have the supply in the shadow inventory, we have demand at lower prices. What is so hard to understand?”
__________________________________________
I’m pretty bearish, I think the market will clear around 2000 or 2001 nominal prices. Unfortunately, sellers who don’t want to ruin their credit but don’t have any funds to bring to the closing can’t move at those prices so 2011 will continue to be a stalemate. Nice places in nice hoods are probably close to bottoming, but the marginal stuff has a long way to fall.
“That they are one of the people who, despite losing a little money, net, on their sale, did a lot better on their purchase–they paid 37% off of original list for the new house.”
First, we don’t know what they lost on that house on Cleveland because it hasn’t closed yet. It could sell for $2.5 million and then they “lost” over $500k. Is that a “little money”? Who knows. Or maybe they sold for $3 million. Then the pain isn’t quite as bad. We don’t know yet.
Second, they’re not making it up on the purchase. Who cares that they got the new house for 37% off the list? It just goes to show you that they overprice houses in Ohio as well.
The only way out of the stalemate is for someone to take a loss – either the bank through the borrowers default or by the borrower paying the bank to get out of the transaction. More people have been choosing the former rather than the latter. Buyers are not, cannot and will not just ‘wait it out’. Life will move on for previous owners but the condo will always stay. They may be waiting it out today, but they won’t wait it out 30 years or until some point in the future when they can walk away without a loss.
2014 is my prediction when the critical mass of foreclosures, defaults, lower prices and buyers with some sort of savings emerge from the ashes to stabilize prices and volume.
I predict 2014 because of the number of properties in foreclosure (roughly between 1.3 and 2 mil); the 90+ plus lates (roughly 2 million); the 1.3 mil HAMPs, and alternative loan mods (unknown); the 300,000 failed HAMP in mortgage purgatory; and the unquantifiable inventory of sellers and accidental landlords who are ‘waiting for the market to improve’.
There will not be a bi-furcated market of crap that is cheap and high end that remains expensive. If one area is too expensive and a much cheaper suitable alternative exists, then people will move to the suitable alternative and that puts price pressure on the other area. Northbrook and Deerfield – which are the north shore alternatives – would have never been developed – if people weren’t seeking alternatives to teh north shore. Hence, only a small little areas of the north shore are truly expensive i.e. east of green bay road – and those prices often are a reflection of the quality of the property or the size of the estate – not just the ‘bifurcated’ nature of the market. Down goes west lincoln park and the ELP goes with it to an equal degree.
People are making predictions, I’m making predictions. Chicago in 2014 will be sub-100 on the CS housing scale and condos will probably be sub-95 or even 90.
We are nowhere near the bottom. if we were, where are the buyers? The ‘bottom’ means deals – and deals bring out buyers – and there are no buyers. HOmes need to be substantially less expensive i.e. sub 100 across the city – and then you’ll have bottom. I’m just not seeing those deals or the buyers to buy up those deals – hence, this cannot be the bottom.
“And people need to move around, irrespective of the prices. Already people have delayed moving because of the housing turmoil.”
Isn’t this one of the big problems? How will they move if they’re $50k or $100k or more underwater? The majority of people don’t have that kind of cash laying around to bring to the close. So what do they do? They either stay in the property for a very long time (a decade or more) or they have to walk away either through a short sale or a foreclosure.
I personally don’t see this cycle stopping in 2011. There were plenty of condos featured here in 2010 which never sold and have been withdrawn from the market mainly because the seller could not lower the price (without bringing substantial money to the table.) Do those come back on the market this spring?
Everyone is hoping that this spring is different and better. But signals so far are indicating it might be worse than what we’ve seen the last few years.
Then what?
a local,
Exactly what “interference … from the federal government” do you think is producing a “distortion of the market”?
“. . . barring any interference with the market from the federal government, prices will bottom in fall 2011 and stay flat through 2012. I hope there is no distortion of the market….just rip the bandaid off and get it over with.”
Are you advocating that the GSEs be dissolved? (Losses at F&F have cost taxpayers $134 billion.)
http://online.wsj.com/article/SB10001424052748703548604576037952096761400.html
James Grant reminds us that in the 1920s, before the GSEs were born, the average mortgage-loan term was 6 years. And
“Mortgages with federal support of one kind or another, as a percentage of residential mortgages outstanding, rose from 7.7 percent in 1970 to 18.8 percent in 1980 to 38.2 percent in 1989.”
(Money of the Mind, 1992, pp. 351-2.)
http://books.google.com/books?id=-6XUBdxy05UC
Today, the WSJ reports “The government continues to dominate the mortgage-lending landscape, with more than nine in 10 new loans backed by Fannie Mae, Freddie Mac or government agencies such as the Federal Housing Administration.”
http://blogs.wsj.com/developments/2010/12/29/four-housing-issues-to-watch-in-2011/
So, is that—the uptick from zero percent in the 1920s to 90+ percent in 2010—the “interference … from the federal government” that you’d like to see removed or ‘barred’, resulting in prices that would “bottom in fall 2011 and stay flat through 2012“?
or are you talking about some other “interference” altogether?
Governments want property values to be high for taxes and for people to keep their properties to pay those taxes. Meanwhile, a lot of hard working people are just waiting for those foreclosures in a nice neighborhood to come through so we can pounce on it. There is a large demand out there, but not at the progressive price or at the present locations. I ca not wait to get out of paying 1,100 a month for rent and start paying a mortgage. I just do not want to live in a bad neighborhood to do so.
oh man. We were so hoping to sell the two-flat soon. But it looks like we will be landlords well into retirement. 🙁
Hindsight is SO 20-20…
NO!
Too multi-dimensional to call a bottom. One thing I learned and always taught is that it is best to take your pain as quickly as possible and move forward. Everything the gov’t did in the past few years has been done in order to suspend a market that couldn’t be suspended. Only made matters worse. Bottom would have been in already if they let all the banks go into receivership and just let all the foreclosed inventory hit the market. Nothing has been done to that effect. All the problems still remain. When this ends no one knows and any date you attach to it is just a guess.
Well put, Ze.
HD covered the finer points very well, but the year is just an educated guess.
I’m grouchy? LOL. Rest assured, I enjoy mocking the fools.
I’m still not considering purchasing until the following gets resolved:
1. Is Illinois going to raise the income tax?
2. If the law passes in Springfield that says Chicago must fully fund its pension funds, what is that going to do to property taxes?
2A. If it doesn’t pass, will Chicago get a bailout? Or will we see the headline in the Tribune: “Obama to Chicago: Drop Dead”. If so, I will have to purchase property with a garage so I can hang that up.
Too many unknowns that are going to effect cost of ownership in the city. We think people that purchsed in 2005-2008 to be bagholders? Perhaps we haven’t seen anything yet…
Interesting article from the Economist that just came out today:
http://www.economist.com/blogs/freeexchange/2010/12/housing_markets_0
I stand by my admittedly soft prediction that the bottom is near in many areas and we will see weak growth for several years to come. So, in my view, housing will remain weak, but we won’t see a big dip. The sky is not going to fall; yet it’s also not entirely sunny yet.
I admit that my own view is somewhat hedged and, to that extent, not an aggressive one. But it’s tough for me to see another bust cycle. I can see the market sputtering for 2-4 years, but I just don’t see even a 10% drop happening. I’m clearly not bullish though. There are so many factors dragging on housing, but I think the unemployment picture is the biggest problem.
All sides take turns at being wrong on these issues so it will be interesting to watch.
“I just don’t see even a 10% drop happening”
A 10% drop in what? CS Index? Nationwide, 20-city, 10-city or just Chicago? Or median prices? Or … something else?
“It must be hard for you to keep it all straight, jmm.”
Keep working on those Excel data dumps. It doesn’t change the fact that we’re still range bound.
And by range bound, here is some analysis which you seem incapable of providing (I even added EXTRA significant digits for you):
Last 12 month average for CS (NSA) = 124.26
10 year average annual STD DEV for CS (NSA) = 3.76
Generally accepted statistically significant range = +/- 2 STD DEV
Upper bound = 131.78
Lower bound = 116.75
Therefore, we are still in a range and have been since early 2009 (almost 2 years). This is not a prediction, it’s an observation.
‘such as ohio pricing in chicago and the market will rebound’
Chicago’s oppressive regulations and government intervention will ensure that if we’re headed to Ohio pricing its on it’s way to Detroit pricing. Rest assured.
Peter Schiff wrote a pretty bleak article in the wsj today, calling for another 25% decline nationally in the CS index, based on Shiller’s 100yr appreciation trend, and an expectation for overshooting on the downside. Basically the exact counter argument of The Economist article.
http://online.wsj.com/article/SB10001424052702304173704575578190261574342.html?mod=WSJ_newsreel_opinion
Thanks, Joe I. I’m off to read this.
“1. Is Illinois going to raise the income tax?
2. If the law passes in Springfield that says Chicago must fully fund its pension funds, what is that going to do to property taxes?
2A. If it doesn’t pass, will Chicago get a bailout? Or will we see the headline in the Tribune: “Obama to Chicago: Drop Dead”. If so, I will have to purchase property with a garage so I can hang that up.”
Predictions:
1. Yes, expect 4% to 5%
2. Yes and Chicago will increase. Based on Anon’s (and my) analysis it looks like about 10-15% total property tax increase. Anon feel free to modify but that is what I recall. I predict Quinn will sign because of i) organized labor and ii) that there are some benefits in the bill to reduce pension issues going forward.
2A. No free passes unless everyone gets a free pass.
Another article on National CS Index doom and gloom:
http://finance.yahoo.com/news/A-Double-Dip-Housing-Market-atlantic-1192353172.html?x=0
Is it bad I keep waking up in the morning dreaming that I bought puts on LEH? those were the days…
“Predictions:
1. Yes, expect 4% to 5%
2. Yes and Chicago will increase. Based on Anon’s (and my) analysis it looks like about 10-15% total property tax increase. Anon feel free to modify but that is what I recall. I predict Quinn will sign because of i) organized labor and ii) that there are some benefits in the bill to reduce pension issues going forward.
2A. No free passes unless everyone gets a free pass.”
Couple of thoughts on that:
1. With an increased personal exemption and/or something else similar, so that fewer people will end up paying more total tax. Which is going to piss off a *lot* of people.
2. Yep, my recollection to. Closer to 15%, I think, but that’s assuming there is no modification in the proposed requirement, which I think there will be, which could well get the increase under 10%. TIF reform (a near certainty, whether we get Rahm or Gery–>anyone else, and plan to run for the hills) also has a good chance of affecting the amount of the increase.
2A. That’s the current thinking. Of course, the most likely federal action is something that changes public employee pension rules, which would disproportionately benefit Dem states and munis, while still fitting the “free pass for everyone” concept.
Right now the IL exemption is $2,000. I don’t see it growing leaps and bounds. Maybe they should increase the property tax credit from 5% to 10% but I doubt it. Tax expenditures are not a positive topic these days.
“Right now the IL exemption is $2,000. I don’t see it growing leaps and bounds.”
Quinn *will* do something stupid w/r/t the income tax increase. I’m going on record that he will go to the mat for an exemption of at least $10k, because he knows who will vote for him next time.
Not that I think that the house would pass that bill, but I also think Quinn might veto what the house passes. He’s entirely likely to make things worse.
“Another article on National CS Index doom and gloom:
http://finance.yahoo.com/news/A-Double-Dip-Housing-Market-atlantic-1192353172.html?x=0”
I think the flaw in a lot of reasoning is that the homebuyer credit was responsible for a bounce off March 2009 nadir (which as we all know, really reflects Jan and Feb as well).
As we know, there was a first time homebuyer credit already in place prior to 2009, though it was not as good a deal. In addition, suggesting people were running out and buying in March 2009 seems a bit disingenous. The reality is probably closer to early 2010 to take advantage.
I think the prevasive and persistent unemployment through 2009 and 2010 is more likely the cause. Plus I do agree the overshoot argument — happened on the upside so very likely on the downside as well. People hate real estate despite a recovery in the economy (just liked the loved it still when we were teetering on recession), and that is when it is usally best to buy. Fear and greed.
“Predictions:
1. Yes, expect 4% to 5%”
Mike Madigan is already on record saying he doesn’t think there’s support for it. Never thought I’d be counting on him for anything politically but he’s my last hope.
“but I also think Quinn might veto what the house passes”
I really hope the house veto’s what Quinn passes. The DB is on record saying his 50% of the vote counts as a mandate. In fact I hope Pat Quinn has a massive coronary event like Richie Sr. I hope he drops dead.
“Quinn *will* do something stupid w/r/t the income tax increase. I’m going on record that he will go to the mat for an exemption of at least $10k, because he knows who will vote for him next time.”
Just adopt a graduated system like California and other states have. Much easier. But effectively what you are suggesting anyway.
Its unclear how a blue state like IL has gotten away with a flat tax for so long anyway.
“Just adopt a graduated system like California and other states have. Much easier. But effectively what you are suggesting anyway. ”
Not a chance. I don’t think that gets the votes in the House *or* the Senate, unless it’s combined with a total overhaul of basically all state and local taxation in the state, and Quinn just doesn’t have the juice, good sense or honesty to make that happen.
“Just adopt a graduated system like California and other states have. ”
California seems to be doing so well with their graduated state income tax system, don’t they? I think you are taxed at 9.3% of your income on anything above 35k? They must be rolling in dough.
“Its unclear how a blue state like IL has gotten away with a flat tax for so long anyway.”
It _is_ hilarious you mentioned California as a comp to justify your feelings of a progressive tax system. Shows what planet you live on.
Bob, IL actually has one of the lowest state tax rates of large blue states. Yet its entitlements lead the nation. That doesn’t work (duh), so perhaps your vituperative remarks are better spent on the expenditures side.
By way of example, top marginal rates:
Big Blue:
New York (ex. city tax): 8.97%
California: 10.55% (9.55% for all mere mortals)
Massachussets: 5.3%
Midwest:
Wisconsin: 7.75%
Indiana: 3.4%
Iowa: 8.98%
Ohio: 5.925% (where the speaker comes from…)
Minnesota: 7.85%
Now, different states extract their pound of flesh in different ways so its not all apples to apples. Some states, like PA, have low individual rates but then stick it to the corporations (they have one of the highest in the country). You see how successful that has been for them.
Either way, IL is a screaming bargain compared to other similarly situated states.
Who says that homes in the GZ can’t fall 50%?
Consider the WSJ’s hardluck tale of Ms. Kelli Kobor & husband, who paid $1.3mm for their Kenilworth home in 04, and then due to misfortune were forced to offer it at $749k.
http://online.wsj.com/article/SB10001424052748704610904576031632838153532.html
The home has traded at $650k.
http://www.redfin.com/IL/Kenilworth/620-Abbotsford-Rd-60043/home/13783683
my questions:
1) Given their downpayment of 350k and mortgage of 960k, what’s a reasonable guess of the per-annum federal subsidy to this household attributable to the tax-code’s interest-expense deduction? By how much were their income taxes lessened?
2) How much time elapsed between default and foreclosure? (6 months? — that sounds way too short.)
3) Will the new owner be able to pay less than the current 21k in property taxes?
thanx in advance to all considered responses.
“Either way, IL is a screaming bargain compared to other similarly situated states.”
It is. That’s the justification Quinn and the leftist leaning economists are using in an attempt to justify a raise. Much like one of my macro professors in undergrad who was espousing that a flat tax is regressive in nature (it isn’t).
“It _is_ hilarious you mentioned California as a comp to justify your feelings of a progressive tax system. Shows what planet you live on.”
You really don’t know much about the rest of the world do you? Other states with graduated taxes (34, inclusive of CA):
AL
AZ
AR
CT
DE
GA
HI
ID
IA
KS
KT
LA
ME
MD
MN
MI
MO
MT
NE
NJ
NM
NY
NC
ND
OH
OK
OR
RI
SC
VT
VA
WV
WI
DC (ok, not technically a state)
So the vast majority of the country’s states have a graduated tax base. Shows you are clueless about the topic. Big surprise.
i’d gladly pay a percent or two more of my damn income to balance the budget and fix roads and whatever else here (like pay the bills) if these pension leeches and government unions would stop destroying the state
but we all know that ain’t ever gonna happen
“You really don’t know much about the rest of the world do you? Other states with graduated taxes”
The fact that 34 states went down the path of a progressive taxation system doesn’t make it inherently right or fair. And look at the states with the highest rates (CA, DC come to mind), they are doing the worst.
Higher taxation regimes generally just lead to more crony capitalism where policy makers are allowed to allocate more of the people’s money to their friends & key voting constituencies (ie: Unions). Unfortunately the public trough can only be milked for so long until it becomes obvious in places like CA that gov’t workers should not make 2x the median wage & benefits of the private sector. Eventually the dam breaks.
“but we all know that ain’t ever gonna happen”
Pat Quinn says its for education. But we know that ain’t gonna happen either. Its to delay the date of fiscal reckoning and give handouts to his key constituencies in order to improve his chances of re-election.
JMM refuses to address the size of our government in his advocacy for a progressive taxation regime. If you recall he, also, was not clear on the actual definitions of a progressive, regressive or flat taxation system.
How is the 10.75% sales tax working out for downtown Chicago? Howabout the 9.75% in the rest of the city? If the tax is higher than the suburbs Chicago should be among the most solvent of municipalities in our dear state…right?
You live in the clouds dude.
throwing more money into the education system doesn’t do shit… there have been numerous studies proving this.
Pat Quinn is just another populist idiot like Blago, why on earth the republicans had an extremist like brady when you could have put a normal person in there and actually won the governorship for once
the sales tax sucks FYI, thats why I buy most of my discretionary crap from amazon where they don’t charge sales tax
eating out on the other hand… ugh
The California ‘progressive’ tax, from my limited understanding of the subject, is 10% (or 9.55%) of anything above $40,000.
So it’s progressive up to a point – but most households except those getting the earned income credits from the feds – pay the 10% tax.
ANd the state turns around and spends every penny of it.
IL has a spending problem, not a tax problem. I don’t want to pay more taxes so that some unionized state employee can get a raise. I know people, higher level people, who tell me horror stories of the crony pay raises, the do nothing jobs, etc. There are seasonal state employees who receive full paychecks all year round. They go into their seasonal offices and sit there and do nothing 6 months of the year. They literally do noting and watch TV – just like on the sopranos – and hang out all day and receive paychecks. The unions negotiated it that way. No lay offs, no furloughs, and raises for everyone while the state is insolvent.
We don’t need to give the bastards another dime.
Don’t let the facts get in the way of your rant guys.
I’ve demonstrated (G would say proven you wrong) that a progressive tax structure has nothing to do with how well or poorly a state is doing. The states with the lowest levels of unemployment and, in some cases, surpluses, employ progressive structures and also have higher state income tax rates than IL.
Examples:
Nebraska
Unemployment: 4.6%
Income taxes: Progressive
Highest Tax Rate: 6.84%
North Dakota
Unemployment: 3.8%
Income taxes: Progressive
Highest Tax Rate: 4.86%
Kansas
Unemployment: 6.8%
Income taxes: Progressive
Highest Tax Rate: 6.45%
There are several others, but again, why bother with facts or analysis? Just a bunch of cry babies who i) don’t understand fiscal economics and ii) are only concerned about their own financial situations.
Yes, their own situations. A bit myopic. Why?
Well, the same general rule applies to those who rent and think crashing housing prices are somehow the ultimate arbitrage, benefiting them exclusively as if they are somehow the smartest people around. I’ve got news for you — you’re not that smart. As many others have pointed out, you all are F’d regardless of whether you own a house or not. The only people who will be left insulated for the effects of a downward housing spiral are the already wealthy who do not need a good economy to do ministerial things like, pay rent, feed families, buy clothes, save for retirement. Good luck with that.
“the sales tax sucks FYI, thats why I buy most of my discretionary crap from amazon where they don’t charge sales tax”
Except IL is now going after that. Only a matter of time before that is taxed. Get your amnesty in now I guess.
“Get your amnesty in now I guess.”
Any more empty threats for us? Lolz.
Oh yeah I forgot you believe in the omniscience & omnipotence of government. Like when they tried to suspend my license for tollway violations and when on the phone with the ITA they asked me my license # and I gave them a bogus #. They used that bogus # on their petition to suspend. LMAO.
JMM is it “only a matter of time” before they correctly suspend my license? Because that was a couple of years ago.
“i) don’t understand fiscal economics”
Your understanding of fiscal economics, at least as it pertains to income tax regimes, is novice at best. Yes you can repeat out of a macro textbook but you cannot discern when the author is describing features common in a tax scheme between necessary definitional attributes of said scheme, which is a big difference.
“you cannot discern when the author is describing features common in a tax scheme between necessary definitional attributes of said scheme, which is a big difference.”
That sentence doesn’t make sense.
If anyone’s understanding is novice, it is yours. Amply demonstrated on this thread.
“And by range bound, here is some analysis which you seem incapable of providing (I even added EXTRA significant digits for you):
Last 12 month average for CS (NSA) = 124.26
10 year average annual STD DEV for CS (NSA) = 3.76
Generally accepted statistically significant range = +/- 2 STD DEV
Upper bound = 131.78
Lower bound = 116.75”
Are the observations that the standard deviation is calculated from drawn from the same population? If not, I don’t really understand what validity it has.
I’ll take the CFA over the disgruntled postal worker any day.
No really guys, unless what you’re chattering about reinforces my worldview, take it somewhere else.
Ok, serious this time. Bob, a failed economy and tanked Real Estate market isn’t a good thing. It diminishes the country’s productive capacity, and immobilizes the workforce. Yeah, it’s great we/I/you dodged the crash by renting, but ultimately we are all in this thing together, and I don’t want to see us stumble through limbo for the next 15 years. Inflation, I believe, is the only out, and at least equally bails out the underwater middle class as well as the upper class with investments.
I don’t think another price decline, a la Peter Schiff’s op ed, would be a good thing for the country. I’d rather have steroid induced growth/nominal stability than more malaise. Bob, you remind me of a former colleague who buys gold coins and buries them at his brother’s farm in NJ. If the world ever got so bad that he needed it as a unit of exchange, a shotgun and a supply of peanut butter would be more valuable than the gold. Likewise, 400k for a SFH in ELP means Chicago = Detroit = Camden, and that’s not good for anyone.
“Inflation, I believe, is the only out, and at least equally bails out the underwater middle class as well as the upper class with investments. ”
What about the seniors living on fixed incomes? Eff em? Inflation is not an easy out–there isn’t going to be wage inflation like in the 70s this time. In order for an underwater middle class to be bailed out you would need wage inflation.
So what’s your solution? End the fed, shut down Fannie and Freddie, sit back, and see what happens?
1) Not end the Fed, they’re a necessary evil. Curtail the Fed’s power. End dual-mandate as its impossible to simultaneously pursue both goals.
2) Stop Fed expansion of it’s balance sheet, work towards a wind-down to pre-crisis levels.
3) Phase out Fannie, Freddie & the mortgage interest deduction over about a dozen years (they did it in the UK and they’re fine).
4) Let the chips fall where they may.
JOE I – again, the fallacy, that less expensive housing in a very exclusive area means we are detroit.
Less expensive housing is a good thing. It maeans less money into the pockets of bankers and more into the pockets of homeowners. The next generation of buyers will bee able to buy a home without having to spend 50% of their income on housing, contrary to Bob Toll’s predictions and desires. Affordable and sustainable housing prices is a good thing for the future, keeping them unsuustainably high is the bad way.
“Affordable and sustainable housing prices is a good thing for the future, keeping them unsuustainably high is the bad way.”
This is obtainable at higher nominal prices than we currently have. Even possible at higher than bubble peak nominal prices.
Joe was *not* proposing that affordable and/or sustainable are bad, just that a further, substantial, nominal price drop would be.
I’m not saying merely “less expensive” means we are Detroit. I’m talking about another major decline in prices as predicted by many of the super bears would not be a solution, it would be an indication that the entire system is failing.
I whole heartedly agree that housing is too expensive, and the very tax issues that were discussed ad nauseum in this thread makes it even less attractive, but there has to be a solution that strikes somewhere between kicking the can down the road (policy up until QE2), and withdrawing all governmental support. Bob’s 4 point plan is actually less radical than I would have expected.
“Bob’s 4 point plan is actually less radical than I would have expected.”
Previously it was more radical and would’ve involved these changes overnight. However upon considering the political feasibility of this as well as the equitable thing to do (for those who took on mortgages under certain assumptions) would require a phase-out.
Even a lengthy phase-out, over, say 30-years, would be preferable to what we have now and not likely ruffle anyone’s feathers.
Price drops mean the system is working and correcting back to pre-bubble valuations.
Anon’s solution means rising wages which ain’t happening (ex jmm says so) so prices have to adjust to wages.
Yes, current owners will feel some pain. Yes, the move up ponzi scheme is over for most. There. Will be little if any equoty that just naturally appreciates.
This is great for future generations wh wont and don’t have money to pay today’s valuations.
Our children will curse us for our debt but thank us for cheap hosuing.
JMM,
Like I have said repeatedly, you make things up when proven wrong and you can’t keep your lies straight.
JMM on September 28th, 2010 at 2:59 pm
“My bet is you see the index stay essentially flat in a band between 120 and 130 for the next year.”
JMM on December 30th, 2010 at 11:08 am
“Upper bound = 131.78
Lower bound = 116.75
Therefore, we are still in a range and have been since early 2009 (almost 2 years). This is not a prediction, it’s an observation.”
Just as my observation is that you make things up and can’t keep your lies straight. But I will make a prediction that you will keep doing it because it is your nature.
“Are the observations that the standard deviation is calculated from drawn from the same population? If not, I don’t really understand what validity it has.”
Come on, DZ, JMM just needed an opportunity to lower his range to fit the latest CS index.
“Are the observations that the standard deviation is calculated from drawn from the same population? If not, I don’t really understand what validity it has.”
Yes, run a rolling 12 month STD DEV for yourself. Then take the average of rolling observations since 2000. CS NSA Chicago.
“Like I have said repeatedly, you make things up when proven wrong and you can’t keep your lies straight.”
In fact, 116 to 131 is entirely consistent. I just backed it up after the fact with analysis that you are apparently incapable of appreciating, let alone performing. Not to mention one observation outside a range only to be followed by another inside the range does not a trend make.
Lastly, the CS NSA was 122 in October.
But of couse if anyone among us was actually good at predicting the future, they’d be off making a lot more money than you do, G, if you are even lucky enough to have a job.
“Are the observations that the standard deviation is calculated from drawn from the same population?”
“Yes, run a rolling 12 month STD DEV for yourself. Then take the average of rolling observations since 2000. CS NSA Chicago.”
Wha? Same index =/= same population.
“This is obtainable at higher nominal prices than we currently have. Even possible at higher than bubble peak nominal prices. ”
Due to inflation?
“Wha? Same index =/= same population.”
Are you talking about different homes being sold? Whoa. You mean it doesn’t track only those homes that are sold each and every month?
If that is the objection then October 2010 data is not comparable to February 2010 data which is not comparable to February 2009 data. Different homes being sold on different blocks by different people. So why would one CS data point compare to any other at any other time? Is the whole CS index random BS?
Of course not (at least not for that reason). For example, everyone tracks the S&P index performance one a 1, 3, 5 year basis but of course the constituents of the S&P are different today than they were 5, 3 and even 1 year ago.
Hell even the constituents of the CPI basket are different than they were decades ago. Ain’t no typewriters getting sold today.
“Are you talking about different homes being sold? Whoa. You mean it doesn’t track only those homes that are sold each and every month?
If that is the objection then October 2010 data is not comparable to February 2010 data which is not comparable to February 2009 data. Different homes being sold on different blocks by different people. So why would one CS data point compare to any other at any other time? Is the whole CS index random BS?
Of course not (at least not for that reason). For example, everyone tracks the S&P index performance one a 1, 3, 5 year basis but of course the constituents of the S&P are different today than they were 5, 3 and even 1 year ago.
Hell even the constituents of the CPI basket are different than they were decades ago. Ain’t no typewriters getting sold today.”
Not the point. What’s the basis for believing that the sale pairs are a normal population?
“Yes, run a rolling 12 month STD DEV for yourself. Then take the average of rolling observations since 2000. CS NSA Chicago.”
1. The regular standard deviation statistic (and its associated properties) applies for a sample (as an estimate or for population, etc. if you want to be technical) that is drawn from the same population. This implies among other things that the expectation of each obs is the same. For nominal case shiller index that trends over time, especially during bubbly times, I wouldn’t make that assumption.
2. Obviously you could mechanically calculate the standard deviation statistic on any set of observations, whether they are drawn from the same sample. I assume that’s what you’ve done, in excel or something like that. That doesn’t mean they have the statistical properties (incl confidence interval) of a standard deviation calculated on obs drawn from same population. (Anon’s point about the normal distribution assumption is also correct.) Unless you have derived the additional statistical properties, you can’t just what you’ve assumed.
3. Even if you take the mechanically calculated annual “standard deviations” as a rough measure of variability, accepting that it doesn’t imply a confidence interval (which would mean the precise interval you report has no statistical validity), the last ten years is a very bubbly period. If the point is to show that values have been within a relatively flat range, it’s hard to see how using the bubble/bust period is the right benchmark. Saying things haven’t moved much more than they typically have in the last decade isn’t same as saying they are “flat”.
Peter Schiff’s op-ed in the WSJ (linked to here on this thread- but you have to have a subscription) is pretty d*mning about how much further prices have to fall- even nationally. Every city in the index will be different, obviously, as some cities like Las Vegas are down 58% now (and STILL falling.)
There’s not much that is “normal” about this housing market right now. So why should we expect prices to normalize?
Schiff thinks it will overshoot on the downside by another 10%- probably within the next 5 years. So another 30% down. He lists many caveats- as many of you have listed on this thread (interest rates, inflation etc.)
People who are buying should expect to stay in their homes for at least a decade- or more. And even then they probably won’t see much of a return.
“People hate real estate despite a recovery in the economy (just liked the loved it still when we were teetering on recession), and that is when it is usally best to buy. Fear and greed.”
Who hates real estate?
All I ever see is people obsessed by it. There are thousands of people reading this site and other housing sites around the country. Real estate is as popular as ever.
I’ve said this before- there is NO fear. Not a single person I talk to every week running this blog (many who write me on the side asking advice) is scared at all. None bring up further price declines- even those who know they won’t live there more than 3 or 4 years. People who lost money on their last sale truly believe they’re getting a “deal” on their new purchase- and aren’t scared at all about being burned again. They still see it as a great investment.
At a true bottom- you can’t give it away. I don’t see that. Not even close.
Sabrina, the biggest difference has to be that people *need* real estate as a place to live. Speaking of GZ and even the nicer should be GZ but not as urban (can we call the the Groove & HD Zones) don’t have long term rental options.
So, and I’m speaking from my point of view – I’ll end up losing on my last transaction even though I bought with a 7 year time frame. Next place will need to be 10-15. I feel that I have to be obsessed in the short run; at least until the location and property is chosen then I’ll just work to pay off the mortgage and one day hold a ‘note burning’ party. I’m not obsessed because I think this is a great income asset but rather that I don’t have a choice, in this city, to rent vs. own even though I agree with another 10% drop coming up off real prices.
And a nod to Bob – a 2 (but with a wall, 3! hah) bed deep in the heart of GZ LP.
http://www.redfin.com/IL/Chicago/1825-N-Howe-St-60614/unit-B/home/13345586
I can’t tell – was this $458k or the $365k number? conflicting info on Redfin who knows all.
“Sabrina, the biggest difference has to be that people *need* real estate as a place to live. Speaking of GZ and even the nicer should be GZ but not as urban (can we call the the Groove & HD Zones) don’t have long term rental options.”
It depends on what you’re renting. I agree that some of the rental stock is not great. But if you’re buying a 1-bedroom or 2-bedroom- you can rent the equivalent for 3 or 4 years or whatever you will realistically live in it. Renting a single family home is more of a chore (although they do exist.)
This is why I believe people will simply bypass the condos altogether and only buy the single family home. They will rent until they are ready to be somewhere 10 years or more.
“I can’t tell – was this $458k or the $365k number? conflicting info on Redfin who knows all.”
It is a confusing record on Redfin- but given the listing history- I would say that sold for $458,000- well under the 2002 purchase price.
By the way- I’m putting up two posts tomorrow to keep everyone busy through the weekend. I was going to take the day off- but there is too much going on right now.
Happy New Year everyone!
Sabrina your assessment of the bottom is spot on, as always.
No response from JMM about making something up?
I feel I must admit that he did say something truthful:
“I just backed it up after the fact with analysis that you are apparently incapable of appreciating, let alone performing.”
Yep, you got me there.
The response is on another thread:
“And G, I didn’t bother to read the frustrated professor babble, so no.”
http://cribchatter.com/?p=9797#comment-116209
LOL, typical of you and your bloviating around here.
“This is why I believe people will simply bypass the condos altogether and only buy the single family home. They will rent until they are ready to be somewhere 10 years or more.”
This makes no sense as most people who live in the city can’t afford a SFH ever…they would have to move to the burbs or far out Chicago (norwood) which is essentially commute wise a burb. Thus, many will search for duplex and 3 bedroom condos in order to stay in the city. Many don’t want to trade a city lifestyle with burbs, yet they won’t be able to afford (let alone finance with lending restrictions increasing) a SFH. There will always be a market for condos so long as people are looking at a long-time purchase 10 years. Also, people in their 50s and 60s want condo lifestyles after the kiddos are gone and schools are no longer a consideration. Many 50s and 60s don’t want to pay 30K taxes for a North Shore address.
Thus, if anything, it means that 1 bedrooms and small 2 bedrooms are going to decrease in value but large, green zone 2 bedrooms (for baby boomers downsizing)and three bedrooms might hold value.
“This makes no sense as most people who live in the city can’t afford a SFH ever…they would have to move to the burbs or far out Chicago (norwood) which is essentially commute wise a burb.”
expand your mind brother, western is not the border!
I can and will list many great places to live in the city with a better commute than your holy grail GZ like say andersonville and lincoln square.
as i always say, Jeff park is a great hood with good people and great transport. you have the blue line, metra, a major bus depot in one spot and within two block 90 and in one mile 94.
and best of all SFH are cheap and a average SMART family making 60k a year can afford a home in Jeff Park
I have read all of these posts and have decided without question that it is time for a CC get together.
How about a Cc breakfast meeting in OakBrook at Clio’s house. That will be followed by a tour of PR thru my eyes and recent research. I’d bet that Groove will take everyone thru jeff park, norwood, and edition park with a quick stop at Superdog. Then it’s down to the GZ where we will have so many options.
Since there might be some mishaps and name calling we can all finish the afternoon off at that attorneys council that I keep hearing about for a good tounge lashing and a few indictments for those occasional hate filled posters.
Finally drinks at Sabrina’s house where she can explain why she puts up with all of her crazy Internet friends!
Should be a fun filled day!
Nicolle – did you send out the invites this morning?
Sorry but my place is out of the question. My studio in uptown is far too small and in far too dangerous of a neighborhood to host a cc party.
Maybe when new construction 3,500 sq ft brick houses in ELP are selling for $350,000 I’ll buy one and host a party.
$100 PSF including land in ELP…..hmmm, i guess Nicolle will send out the invite for 2014.
Shotgun.
“Maybe when new construction 3,500 sq ft brick houses in ELP are selling for $350,000 I’ll buy one and host a party.”
maybe if I win the megamillions i’ll buy everyone here a drink… actually nah, screw you guys i’ll be someplace warm
O.K. I am late in this discussion. The bottom is not here obviously. Prices have dropped since this blog. But it is partly here. When a condo can rent for about double of mortgage, tax, and assesments we are at bottom for a lot of the condo inventory. So in Rogers Park a one or two bedroom selling at 40 – 60 K in great condition can be rented at twice. So everytime one comes on the market it sells quickly. But all those condos that stubbornly hold to a higher price will not sell at list. So most prices still have to drop. The market is not gaged by the first time home buyer now, but by the investors. Still if you find the place you like 10 – 25 K from the bottom and you are going to live in it for 5 years then buy it. Cost will be lower than rent, your rent will stablize and your home value will increase when you decide to move. We are near the bottom. The real bottom won’t occur til 2012 but it is here now in some instances.